After the long, stressful process of litigating your claim, you have finally received a judgment in your favor allowing you to recover against the opposing party. Theoretically, this is the last you will see of the courtroom. In reality, you may have another fight ahead: collecting on your judgment. Debtors can be deceitful and attempt to hide their assets so they do not have to turn them over to you. While some of the debtor’s property will be protected, there are tools available to help you collect on your judgment.
Whether you have recently received a default judgment on your claim or you received a judgment several years ago that you have failed to collect, one valuable option for judgment creditors in Texas is to invoke what is commonly known as the “turnover statute.” The turnover statute provides court assistance to reach property. The purpose of the turnover statute is to provide judgment creditors a procedural device to reach assets of a debtor that are “otherwise difficult to attach or levy on by ordinary legal process” by allowing a court to “reach assets owned and subject to the control of a judgment debtor.”[1]
The turnover statute, found in Tex. Civ. Prac. & Rem. Code § 31.002, provides:
(a) A judgment creditor is entitled to aid from a court of appropriate jurisdiction through injunction or other means in order to reach property to obtain satisfaction on the judgment if the judgment debtor owns property, including present or future rights to property, that:
- cannot readily be attached or levied on by ordinary legal process; and
- is not exempt from attachment, execution, or seizure for the satisfaction of liabilities.
(b) The court may:
- order the judgment debtor to turn over nonexempt property that is in the debtor’s possession or is subject to the debtor’s control, together with all documents or records related to the property, to a designated sheriff or constable for execution;
- otherwise apply the property to the satisfaction of the judgment; or
- appoint a receiver with the authority to take possession of the nonexempt property, sell it, and pay the proceeds to the judgment creditor to the extent required to satisfy the judgment.
Three Key Observations on the Turnover Statute
Judgment creditors may use the turnover statute to collect the entirety of the original award—actual damages, prejudgment interest, exemplary damages, interest, court costs, and attorney’s fees. Here are three important things to know about utilizing the turnover statute as a judgment creditor.
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Creditor Must Follow Proper Procedure
The Turnover Statute requires the judgment creditor show the writ of execution was returned nulla bona, and that the debtor’s assets are not subject to ready attachment or levy by the ordinary legal process.[2] The creditor may then file a turnover application with the court which includes a description and some evidence of the non-exempt property thought to be held by the judgment debtor. When these initial measures are followed, the open-ended nature of the turnover statute allows the court to exercise its own discretion to consider property owned and controlled by a debtor that would not be available to the creditor under any other circumstance.
Debtors often go to extreme measures to attempt to protect and hide their assets, and Texas law makers have responded accordingly to help creditors collect on their judgments. For example, in World Fuel Services Corp. v. Moorehead, the court permitted turnover relief for the creditor’s $4.4 million debt, finding the debtor had pledged or assigned assets to third parties such that he had “systematically liquidated, transferred and encumbered assets in six months following judgment, including stock and receivables, going from stated net worth of $34 million to point where he maintained he lacked sufficient unencumbered assets to pay judgment.”[3]
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The Debtor has the Burden to Show Property is Exempt
While the creditor must initially identify the property at issue, if the judgment debtor asserts the asset is exempt from turnover, it is the judgment debtor’s burden to prove the exemption.[4] Importantly, multiple courts have found that the “mere fact that assets have been pledged to third parties does not necessarily mean that they are not owned by or subject to control of debtor.”[5] Property that may be included in turnover relief includes property outside Texas, secreted property and intangible property rights.[6] Negotiable instruments, rental income, interest income, and cash in a judgment debtor’s possession or control are also subject to the turnover statute.[7] While the court will decide what property may be exempt from turnover, the judgment debtor’s personal property under Texas Property Code §§ 42.001 and 42.002 will not be subject to turnover.
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Collection Includes Attorney’s Fees
Plaintiffs are entitled to recover all reasonable and necessary attorneys’ fees and court costs in connection with a turnover motion.[8] In fact, Texas courts have found the award of attorney fees and costs is mandated under the turnover statute where the party has successfully obtained turnover relief.[9] If the judgment creditor is unsuccessful in seeking recovery via the turnover statute, no attorney’s fees are awarded.
Not only are judgment creditors entitled to attorney’s fees for the turnover action itself, but when attorney’s fees are awarded in an underlying action, judgment creditors are eligible to collect those fees as well using the turnover statute. In the 2009 case, Haden v. David J. Sacks, P.C., Haden challenged an award of $90,000 for attorney’s fees accrued as part of bankruptcy proceedings incident to the turnover relief obtained by the law firm.[10] The court found it was undisputed that the law firm in the case was a judgment creditor, and a proper party under Tex. Civ. Prac. & Rem. Code § 31.002(e).[11] Looking at the plain language of the turnover statute, the court ruled the trial court did not abuse its discretion by interpreting § 31.002(e) to allow for the full award of attorney’s fees and costs to the law firm.[12]
The turnover statute is by no means a guarantee that a judgment creditor will be able to collect on its judgment from the debtor, but it is a key tool available to all creditors and should certainly be considered when a debtor is trying to hide or manipulate assets to avoid paying a judgment.
[1] Resolution Trust Corp. v. Texas Moline Ltd., 96 F. Supp. 2d 644, 646 (S.D. Tex. 2000). It is important to note that the creditor is not required to exhaust other remedies before seeking turnover relief. See Universe Life Ins. Co. v. Giles, 982 S.W.2d 488, 493 (Tex. App.—Texarkana 1998, pet. denied).
[2] See World Fuel Services Corp. v. Moorehead, 229 F. Supp. 2d 584, 587 (N.D. Tex. 2002).
[4] In re C.H.C., 290 S.W.3d 929, 931 (Tex. App.—Dallas 2009, no pet.); World Fuel Services Corp., 229 F. Supp. 2d at 596.
[5] World Fuel Services Corp., 229 F. Supp. 2d at 596; Dale v. Finance America Corp., 929 S.W.2d 495, 499 (Tex. App.—Fort Worth 1996, rehearing overruled, writ denied, rehearing of writ of error overruled) (Judgment creditor was able to trace assets in the turnover order back to Dale and demonstrate the items were subject to his control, including those held by third parties.); Norsul Oil & Min. Ltd. v. Commercial Equipment Leasing Co., 703 S.W.2d 345, 349 (Tex. App.—San Antonio 1985, no pet.) (Incomplete transfer of stock was not an exempt asset and was therefore subject to the turnover statute.).
[6] Barrera v. State, 130 S.W.3d 253, 256 (Tex. App.—Houston [14th Dist.] 2004, no pet.).
[7] See Copher v. First State Bank of Pittsburgh. Texas, 852 S.W.2d 738, 741 (Tex. App.—Fort Worth 1993, no pet.); Beaumont Bank, N.A. v. Buller, 806 S.W.2d 223, 227 (Tex. 1991).
[8] See Tex. Civ. Prac. & Rem. Code § 31.002(e).
[9] Great Global Assur. Co. v. Keltex Properties, Inc., 904 S.W.2d 771, 776 (Tex. App.—Corpus Christi 1995, no pet.).
[10] Haden v. David J. Sacks, P.C., 332 S.W.3d 523, 524 (Tex. App.—Houston [1st Dist.] 2009, no pet.).